The key measures of banking conditions reported at year-end 2012 all fell within the range of projections offered by the Federal Reserve Bank of Minneapolis a year ago. The pace of loan growth was at the high end of expectations, while profitability and loan performance ratios landed right in the center of the forecast range.

The Federal Reserve Bank of Minneapolis projects continued steady improvement for Minnesota banks across key measures of earnings, growth and asset quality. “Banks in Minnesota have registered gains in emerging from crisis conditions over the past several years,” said Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis. “I expect 2013 to see continued improvement in loan growth and profits, although at a slower pace than last year. Both measures will likely remain off long-run medians. Problem loans should also decline, but given their already low levels, this decline will be measured.”

2012 Performance
According to data collected at year-end 2012, Minnesota banking conditions had middling to strong improvement for the year.

The median level of problem assets (as a percent of the resources banks must have to cover potential losses on loans) fell to 11.63 percent at year-end, improving considerably from the 13.22 percent rate of a year ago. The current ratio compares favorably to the long-run median. Profitability as measured by the median return on average assets improved to 0.92 percent at year-end, up 15 basis points from the previous year. Minnesota banks saw negative loan growth throughout 2009, 2010 and 2011, but the annual rate for 2012 reached 1.7 percent. Banks in the state continued to maintain record high levels of capital and liquidity in 2012. Total risk-based capital declined by about half of a percentage point from a year ago to 15.34 percent, while Minnesota banks have steadily reduced reliance on “noncore” funds for more than three years.

2013 Forecast
The 2013 forecast projects the level of problem assets to remain steady or improve. Currently at 11.63 percent, the ratio of noncurrent and delinquent loans to capital and allowance is expected to end 2013 between 8.5 percent and 12 percent. The return on average assets (a key measure of profitability) should continue to climb in 2013 to somewhere between 0.95 percent and 1.10 percent. That range for profitability stands below the long-run median. Loan growth is projected to rebound to a range of 3 percent to 7 percent, the upper end of which is closer to historical norms.

The data for Minnesota and the nation are found in the tables below. The attachment to this release provides additional data on the characteristics of banks in the region and definitions and explanations of those data.

Montana banking conditions improved in 2012, generally consistent with the Federal Reserve forecast. Actual loan growth and asset quality measures both finished the year right around the middle of the forecast range. Profitability rose in 2012 to 0.8 percent and came in slightly lower than the bottom of the forecast range of .825 percent.

Banking conditions in Montana are projected to improve across key metrics over the next year. According to a forecast by the Federal Reserve Bank of Minneapolis, banks in Montana will strengthen earnings and improve overall loan growth in 2013. The level of problem loans is already fairly low by historical measures, but might continue to improve in the next year. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “I expect to see continued improvement in major measures of banking health in Montana. By the end of next year, conditions overall will be closer to normal than they have been since emerging from crisis.”

2012 Performance
At the median, asset quality, earnings, loan growth, capital and liquidity all improved over the past year. Montana-based banks reduced the median level of problem assets as a percent of the resources banks have on hand to cover potential losses by 2.51 percentage points from a year ago to 14.13 percent at year-end 2012. Montana bank earnings (measured by the median return on average assets, or ROAA) were relatively flat in 2012, improving by just 3 basis points from a year ago. Year-over-year net loan growth improved by 270 basis points in 2012 compared to 2011, but is still negative at -0.30 percent. Both capital and liquidity remain strong at the state’s banks, and neither has been an area of concern post crisis. The total risk-based capital ratio increased slightly to 17.43 percent. The use of noncore funding as a percent of total liabilities (rather than more stable traditional deposits) decreased to 17.80 percent.

2013 Forecast
According to the Federal Reserve Bank of Minneapolis forecast for 2013, Montana banks will finish next year with stronger earnings, positive loan growth and continued strength in loan quality. A key profitability metric, ROAA, is expected to rise to a rate between 0.9 percent and 1.05 percent. Total outstanding loan balances are projected to rise in 2013 for the first time since 2009 to an annual net loan growth rate between 1.5 percent and 5.5 percent. The level of problem assets (measured by noncurrent and delinquent loans as a percent of capital and allowance) is already at a very strong historical level, but should improve with a chance to remain at the strong current rate; it is projected to stand between 11.5 percent and 15 percent at year-end.

The data for Montana and the nation are found in the tables below. The attachment to this release provides additional data on the characteristics of banks in the region and definitions and explanations of those data.

North Dakota Banking Conditions Improved in 2012, Consistent with or Better than Federal Reserve Forecast; Conditions Projected to Remain Strong in 2013

Banking conditions for North Dakota banks improved strongly in 2012, generally consistent with the Federal Reserve forecast. Profitability finished 2012 squarely in the middle of the 1.1 percent to 1.3 percent range forecast. The level of problem assets at year-end was close to the lower end of the 4.25 percent to 7.75 percent range of values that were expected. Loan growth was forecasted to be above near historical highs, but the actual experience was even stronger.

The Federal Reserve Bank of Minneapolis describes banking conditions in the state of North Dakota as exceptional and expects the state’s 88 banks to maintain that strength in 2013. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit, “I expect North Dakota banks to continue to perform exceptionally well compared to the rest of the country in 2013. Given already extremely strong conditions, improvements could be small, but I expect that measures of profitability, growth and asset quality will remain in the range of the impressive statistics we see today.”

2012 Performance
North Dakota banks improved in several key measures over the course of 2012. The volume of problem assets remains low and continues to shrink, profitability is strong and loan growth improved from a year ago. The state median level of problem assets as a percent of the funds set aside to cover potential loan losses dropped nearly two percentage points in 2012 to a near record low at 4.86 percent—well-below the national median of 11.9 percent. Earnings for the year registered a 1.18 percent median return on average assets (ROAA), exceeding the long-run median. Loan growth also came in at a robust 10.94 percent at year-end 2012, more than twice the 2011 rate and 5 times the national median of roughly 2 percent. Capital and liquidity measures were strong. The total risk-based capital ratio fell slightly by 33 basis points during the year, but the median bank remains well capitalized. Liquidity continued to improve in 2012 as the noncore funding ratio fell to 13.8 percent at year-end.

2013 Forecast
The Federal Reserve Bank of Minneapolis forecast for 2013 anticipates that metrics of bank performance and health will improve, but at a slower rate than in the previous year. There is some chance that conditions could remain at current exceptionally strong levels. The current ROAA of about 1.2 percent, a key profitability measure, is expected to remain between 1.15 percent and 1.3 percent. The Federal Reserve Bank of Minneapolis sees continued strong loan growth rates over 2013, in the range of 8 percent to 12 percent. The level of problem assets is expected to stay near the current record lows and finish 2013 between 3.5 percent and 7 percent.

The data for North Dakota and the nation are found in the tables below. The attachment to this release provides additional data on the characteristics of banks in the region and definitions and explanations of those data.

South Dakota banking conditions generally improved last year, consistent with most aspects of the Federal Reserve Bank of Minneapolis forecast. The problem assets ratio was forecast to finish the year between 2.5 percent and 6 percent, as it did, landing in the middle of that range of values. South Dakota bank median loan growth in 2012 was toward the higher end of the forecast that expected a rate between 1 percent and 5 percent. Profitability fell to 1.04 percent, a bit lower than the forecast range between 1.15 percent and 1.35 percent for 2012.

Conditions for South Dakota banks are expected to improve in 2013 or remain very strong. Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, said, “Banks in South Dakota should continue reporting low levels of problem assets over the next year. Loan growth rates seem likely to improve, and profits should increase this year. Even though each of these key indicators is already healthy relative to the rest of the country, I foresee continued strengthening or strong conditions over the course of 2013.”

2012 Performance
During 2012, the median South Dakota bank reported improvements across most measures of bank health. The median South Dakota bank reported problem assets (as a percent of resources banks must have to cover potential losses on loans) at 4.24 percent as of year-end, a slight improvement of 36 basis points from a year ago. This level remains well below the national median of 11.9 percent. Earnings (as measured by return on average assets) were relatively flat from the prior year at 1.04 percent, a very small decline of 7 basis points but considerably greater than the national median of 0.86 percent. Year-over-year loan growth reached a rate of 4.02 percent in 2012, an improvement of 3.36 percentage points from 2011 and about twice the national median. Liquidity and capital remained strong and continued to improve in 2012. The total risk-based capital ratio reached 17.4 percent, while the median use of noncore funding sources (as opposed to more stable traditional deposits) fell to 16.8 percent. Both remain stronger than national medians of 11.9 percent and 20.0 percent, respectively.

2013 Forecast
Key measures of earnings and growth are likely to improve at South Dakota banks in 2013. Asset quality is expected to remain exceptionally strong and may improve even further. Already very low by historical standards, the ratio of problem loans to capital and reserves against loan losses is forecast to remain between 3 percent and 6.5 percent. A benchmark earnings measure, return on average assets, is anticipated to rise above 1.1 percent and as high as 1.27 percent. The annual net loan growth rate should remain above 4 percent and seems likely to improve to as much as 8 percent.

The data for South Dakota and the nation are found in the tables below. The attachment to this release provides additional data on the characteristics of banks in the region and definitions and explanations of those data.

Key measures of bank health are generally expected to strengthen in 2013. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Next year will most likely be a bit better for banks in the Upper Peninsula. I think the Michigan banks in our district will see better—and possibly positive—loan growth for the year, improvement in profitability and fewer problems with bad loans. The low side of the forecast is generally consistent with current conditions. It is important to stress that forecasting these ratios for the Upper Peninsula comes with significant uncertainty because of the small number of banks in the region.”

A key measure of problem loans worsened in 2012 for U.P. banks. The median level of overall problem assets as a percent of the resources banks have set aside to cover potential loan losses increased by nearly 5 percentage points to 20.48 percent from the end of 2011. The annual loan growth rate fell by about a quarter of a point in 2012 and remains negative at -1.28 percent. At the median, U.P. banks reported some improvement in profitability. The return on average assets was 0.91 percent at year-end, 12 basis points better than a year ago. A key capital ratio (median total risk-based capital) improved 15 basis points for the year to 18.79 percent. Use of noncore funding as a percent of total liabilities (rather than more stable traditional deposits) was 20.73 percent, up 11 basis points over the previous year.

The Federal Reserve Bank of Minneapolis forecasts three key measures for the year. In the areas of profitability, loan growth and asset quality, the 2013 forecast generally expects improvement for U.P. banks. The current return on average assets is 0.91 percent and is expected to finish the year between 0.9 percent and 1.05 percent. The forecast anticipates improvements in loan growth, but recognizes that loan growth may remain negative. The level of problem assets is expected to improve, with the median amount of noncurrent and delinquent loans falling to a range between 16 percent and 19.5 percent of capital and allowance.

The data for upper Michigan and the nation are found in the tables below. The attachment to this release provides additional data on the characteristics of banks in the region and definitions and explanations of those data.

The Federal Reserve Bank of Minneapolis has released a 2013 forecast of generally improving performance for Wisconsin banks with some chance for a stable outcome. Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, said, “Banks in the western part of Wisconsin saw considerable improvement from a year ago and are likely to continue gains in key measures of health through the next year. By the end of 2013, I project improvements in asset quality, loan growth and profitability with a low chance that conditions remain roughly equivalent to current conditions.”

2012 Performance
The 56 banks in western Wisconsin improved across key metrics in 2012, and most metrics remain better than national ratios at the median. The level of problem assets compared to the resources banks have to cover loan losses remains at 14.3 percent, a low figure historically for this part of the Ninth District. Year over year, the measure improved 2.32 percentage points. Earnings, as measured by the median return on average assets, improved 14 basis points from a year ago to 1 percent and compare favorably to the national median bank of 0.86 percent. Western Wisconsin banks’ loan growth turned positive in 2012, reaching 2.02 percent, an increase of 4.7 percentage points from a year ago. Capital remains strong; the median total risk-based capital ratio reached record highs in mid-2012 and stood at 16.1 percent at year-end. The median bank dependence on noncore funds (rather than more stable traditional deposits) dropped by more than a percentage point over the course of the year to 17.7 percent.

2013 Forecast
According to the forecast for 2013, profitability is likely to increase, falling in a range between 1 percent and 1.15 percent. Net loan growth is expected to increase as well to between 2 percent and 6 percent. The forecast anticipates that asset quality (the median ratio of noncurrent and delinquent loans as a percent of capital and reserves) will finish 2013 generally lower than the current figure with a range between 12.5 percent and 15 percent. The weak side of these forecasts is generally around current levels.

The data for western Wisconsin and the nation are found in the tables below. The attachment to this release provides additional data on the characteristics of banks in the region and definitions and explanations of those data.